Saputo struggling to grow milk volume

“With the decline of overall production in the country, there’s been a lot more competition for milk

Saputo has not been able to grow milk volumes processed in its new combined Murray Goulburn-Warrnambool Cheese and Butter business despite the integration delivering synergies ahead of schedule.

Lino Saputo Jr, speaking after the release of Saputo’s second-quarter results in Canada on Thursday, said the combination of the two operating units into one single platform was advancing extremely well.

“I think there are some synergies that we are deriving now, perhaps earlier than we had anticipated and that’s showing up in the bottom line,” he said.

But the company had not picked up any of the extra milk volumes it was chasing.

Mr Saputo said its intake was “balanced” to last year, with WCB’s intake running at about 1.0 billion litres and MG’s running at about 1.6 billion litres (excluding 300 million litres from the Koroit plant, which the Australian Competition and Consumer Commission required Saputo to sell).

“With the decline of overall production in the country, there’s been a lot more competition for milk,” he said.

“And so we understood it would take probably up to three years before we get to the run rates that we would be comfortable with.

“We are not quite there yet.”

Mr Saputo said the company remained focused on increasing it milk intake, reviewing operations and maximising its network.

“We’ve demonstrated our long-term commitment to our suppliers by treating them with respect and loyalty and by offering market-leading milk prices,” he said.

The recently acquired MG business was a positive in the company’s results’ announcement – despite Saputo’s profit falling about 12 per cent for the September quarter.

The company reported net earnings fell 11.9 per cent to $C163.1 million for the quarter.

Revenue was up 18.6pc, mainly as a result of the contribution of recent acquisitions, including MG.

But tough conditions in the United States, lower international dairy ingredient and cheese market prices and higher warehousing, logistical and transportation costs hit profitability.

Mr Saputo said some of the pressure on returns in the US had come from trade tensions.

Tariffs imposed by Mexico during the trade talks between it, the US and Canada had meant some product was being brought back into the US rather than sold in Mexico.

“Of course, there’s also an oversupply of production in the global market,” he said.

“So it wasn’t only related to the Mexican trade issue.

“I think it’s global trade issues, depressed prices around the world, a price war or tariff war with China.

“I think all of those have an impact on milk and/or dairy solids remaining in the US.”